SPOTLIGHT Short-Term Liquidity

Shangri-La for small business accounts? Why aren’t more small businesses taking advantage of interest-paying current accounts? Mark Christopher of Cater Allen Bank explains.

nterest-paying bank current accounts have been available to individuals Isince the late 1980s, but for the vast TABLE 1 majority of UK small businesses such Standard small business tariffs accounts have remained a tantalising prospect. Account Interest on Account Charge per Charge per The major point, with some jus- business current maintenance manual automated tification, to the cost of money transmis- account charge transaction transaction sion and bad debts on business loans as their reason for not paying interest Nil £2.50 per month 64p 45p on business current accounts. And it is Lloyds/TSB Nil £2.50 per month 59p 42p somewhat unrealistic for a company HSBC/Midland Nil £2.50 per month 60p 35p with a heavy transaction volume and NatWest Nil £2.50 per month 67p 40p bank borrowing to expect to receive it. There are however hundreds of thou- sands of small- to medium-sized busi- Someone who has devoted an entire available. Meanwhile, publications such nesses that are running creditor bank day to administrative matters probably as Business Money Facts, list quite a accounts with a small number of trans- feels that he or she should get ‘back to large number of smaller banks which actions for which the ‘Shangri-La’ of an work’ and would be less than enthusi- will offer free banking for around 150 interest-paying bank account with free astic about spending another day trawl- transactions per quarter (if the account banking is a distinct possibility. ing the banks for a better deal on the holder remains in credit) and will also company’s business account. pay interest on business current Poor coverage account. The Mail on Sunday launched a cam- What are the alternatives? paign in early 1998 aimed at persuad- Table 1 summarises the standard small- Unlocking savings ing the major banks to pay interest to business tariffs that have been pub- Moving a business account to one of such businesses, but like earlier cam- lished by the four major High Street these institutions has the potential to paigns, it fizzled out without too much banks. unlock quite substantial savings on success. It can be seen from the table that the charges. It also means that there is a Given the large number of companies major banks all offer similar tariffs. It is potential for extra income by way of affected, it is quite extraordinary how lit- this factor that probably convinces many interest. Table 2 shows the potential for tle coverage in general this subject people that there are no alternatives savings. receives in the national press and even Companies will naturally be con- in specialist business publications. cerned to establish that the ‘alternative Looking at the business banking litera- banks’ can provide basic banking facil- ture of the majority of banks, it is obvi- ities and the majority provide cheque- ous that it is aimed at business start-ups, books, standing orders and direct deb- since banks can make a good profit its plus access to UK and international from start-up loans. However, there is a payments. distinct lack of literature aimed at One important proviso, however, is explaining how the mature business can that very few of these alternative improve banking terms. providers will give commercial over- drafts. This means that the business has Time is the key to be sure that it can continue to run in So why is there so little reaction to the credit. standard terms offered by the larger Non-high street banking is probably banks? not for businesses that have a high cash As ever, lack of time is probably a key turnover. This is because agency factor for many business owners. Mark Christopher charges for paying in at a bank branch

The Treasurer – January 2000 41 SPOTLIGHT Short-Term Liquidity

can be very high. However, some of the the potential benefits of banking with a particularly favourable deals for the smaller banks can make arrangements non-high street bank are not just con- larger banks. ■ for cash to be paid in at post office fined to commercial organisations, but counters for a reasonable charge. will also extend to charities, clubs and Mark Christopher is a senior manager at Finally, it is worth bearing in mind that associations, none of whom receive Cater Allen Bank.

TABLE 2 Comparison of bank charges for business accounts

Gross interest earned on Bank Net (charge)/ £20,000 in business current Charges addition to account over one year account over the year

Typical interest £608.00 Nil £608.00 paying business cheque account

Typical standard Nil £315.00 (£315.00) small business tariff

Calculations for bank charges assume 300 manual and 300 automated transactions for the year plus account maintenance charges and are based on the standard small-business tariffs published by each bank. Illustration of potential interest earnings based on typical business high interest cheque account rate of 3% gross credited monthly.

Source: Cater Allen calculations, November 1999